Choosing the right card as your family grows

By Benjamin Salisbury

right-card-for-family

As you start a family, how you use and manage credit changes. You may go from jet-setters to homebodies when you first have a child, but you may take more family vacations or purchase more big-ticket items as your toddlers become teens.

Understanding the best ways to use credit in a family scenario helps you manage your finances more effectively.

As you begin to have children, responsibility is the watchword, and this applies to finances as well as the well-being of your child. The list of new equipment and expenses needed to prepare for a baby is long and costly.

"We know there are around 8 million people across the UK who regularly miss bill repayments or feel overwhelmed by their debts and just over half of them are parents," Colin Kinloch, debt expert for the Money Advice Service, said in an emailed reply to questions.

Here are some things to consider as you navigate the world of credit - with kids.

Create a budget.
Creating a budget helps you prioritise what you need to spend and when, so you can plan your cash flow and try and ensure income matches outgoings. It's tempting and often easy to overspend on outfits, gadgets and accessories when you are expecting a first (or second or third) child. As your children grow, you'll be tempted to go overboard at holidays and birthdays, too.

"For families who feel they are struggling with debt, the first step is to build a detailed household budget and establish a clear picture of their finances," Ed Ware, PR manager at the debt charity StepChange, said in an emailed response to questions.

"Debt can have an enormous impact on families," Ware said. "We know that families with debt problems often cut back on essentials to keep up with debt repayments."

For example, if you are on maternity leave, your income may have dropped, so budgeting for expenses is even more important - particularly because you cannot decide the timing of the new expenses. The rate of development of the baby often dictates when things are needed.

"With costs rising, families need to spread their budgets further," said Kinloch. "Growing families can find this hard as they need to cover additional costs - such as food, clothing and childcare - often whilst on a reduced income."

How does spending change?
You and your partner will be budgeting for the immediate family expenses, including a new cot, high-chair and buggy for your baby.

You may need to pay for an extension to your home, or, at the least, change the use of one room to create a nursery. This may involve new flooring or paint, new furniture and possibly some safety features added, such as soft-closing drawers.

You'll also need to buy car seats, educational toys and baby clothes with regular replacements needed as your child grows.

Use your credit card to soften the blow.
Depending on your financial situation as you enter parenthood, you can use a credit card (either an existing card or a new one) to help cover costs and possibly recoup some of them. You may also be able to use 0% interest periods to repay some big-ticket items over a longer period.

Some choices include:

  1. Switch reward cards.
    In your pre-kid life, your spending patterns were different and you may have used a particular type of credit card to maximise your spending.

    For instance, if you enjoyed travelling, you may have had a travel rewards credit card, enabling you to earn airline miles on your purchases.

    Your jet-setting days may be over for a while, but that spending will be replaced by different regular baby and family expenses, so it may be time for a cash back card instead of a travel card. You'll be able to put your rewards toward the new items in your budget rather than toward air and hotel, allowing you to recover some of those big first-time-parent costs.

  2. Give yourself some breathing space with a 0% purchases card.
    Another credit card option to consider is a long-term 0% purchases credit card.

    Some credit cards offer up to 31 months with no interest on spending, providing you with some breathing room. When you're purchasing lots of big-ticket items, such as cots and car seats or home renovations, 0% on those purchases can be a great perk.

    These 0% cards are great for budgeting, too, because you can tally up your estimated costs and divide the sum by the amount you can afford to pay each month, then get a card that offers that many months' worth of interest-free purchases. Or, you can divide your sum by the number of months you're approved for and know exactly how much you'll need to put toward the card balance each month.

  3. Evolve your card as your family grows up.
    The costs don't stop as your baby becomes a child.

    As children get older, you'll regularly replace clothes and footwear, and pay for classes, clubs and lessons. You'll also purchase items such as bikes and gadgets that will need replacing as the child outgrows them or to keep pace with new technologies.

    This might mean applying for a card with a higher cash back percentage, or a card that offers cash back in different categories than the card you got when your children were infants.

    You'll likely want to travel with your children, too, and that might mean going back to a travel rewards card to pay for holidays.

    Finally, the balance on that 0% purchases card may start to inch toward the limit. Hopefully, you're able to stick to your plan of paying it down, but if not, it may be time to consider switching your debt to a 0% interest balance transfer card, which gives you more time to repay what you owe before you're hit with interest.

Whether you have children or not, how you use your credit cards is something you should examine at least annually to be sure your cards are still the best fit for your needs. With children, it's especially vital to regularly take stock of your spending and make sure your card is doing as much as possible for you.

See related: Smart ways to spend on holiday, Your heart is ready for a furry companion, but is your wallet?, Is your debt hurting your kids?

Published: 21 June 2017